Alternative investments like hedge funds are often highly advocated by financial advisors, but it’s not easy for individual investors to get exposure. Such investments are generally for the wealthy and institutions.

It’s an interesting concept in the ever-growing world of ETFs, which is why I was excited to have the chance to chat the company’s CEO Adam Patti. Here’s what he had to say:

Q: What is the goal of IndexIQ?

A: We began back in 2006 with a focus on providing active management for alternative investments. Our unique products come in three flavors — absolute returns, real assets and global — and help provide better diversification for investors. We structured our ETFs to replicate a hedge fund, but without the steep costs.

See, a hedge fund will generally have two layers of costs. One is the management fee of about 2% and then a performance fee, which often comes to about 20%. In fact, there can sometimes be another layer of fees depending on what fund you buy. Plus, a hedge fund investor must deal with the complex taxes, which involve K-1s, on top of lock-ups, where you are required to keep your money with a fund for a few years.

With IndexIQ, we have none of these restrictions … and our fees are low. The expense ratio averages about 0.75%.

Q: How liquid are IndexIQ’s funds?

A: Liquidity is not an issue. One big misperception is that trading volume equates to liquidity. The fact is that ETF structures are built to handle the inflows and outflows. Instead, the real risk is the liquidity of the underlying portfolio. If it’s hard to get out of a trade, then it could have a negative impact. One good strategy is to set limit orders to get better pricing on your trades.

Q: What are some of your hottest products?

A: One is the U.S. Real Estate Small Cap ETF (NYSE:ROOF), which is a unique product because of its focus is on small caps. Based on our research, we found there was better diversification in that group. The larger REITs like Simon Property Group (NYSE:SPG) and Vornado (NYSE:VNO), on the other hand, tend to be highly correlated with the general market.

Q: What is another sector you like?

A: I’m very interested in commodities as well. To play this, we have the Global Resources ETF (NYSE:GRES) — our flagship natural resources fund. We found that investors did not understand the risks of futures and that many resources funds tend to be focused heavily on energy. With GRES, we took a broader approach and have investments in timber, water, coal and so on. We also have only equities in the portfolio — no derivatives.

Q: How much alternative investment exposure would you recommend for most portfolios??

A: If you have a long horizon — say 20 years — then you should have about 5% in commodities, 10% to 20% in hedge funds and 5% in real estate. These should help provide better returns over time, beyond the general stock and bond markets.